ACCT CH.1 NOTES

Why is accounting important?

It is a system & measurement used, to IDENTIFY, RECORD, & COMMUNICATE business activities

It's the language of business That helps improve decision making.

Who uses accounting information?

External Users - people who indirectly work w/ the accounting info & have limited access to it
ex- lenders, shareholders, suppliers)
Financial accounting-focuses on the needs of external users
Internal users- people who directly work w/ accounting info & manage it & the organization.
(ex. HR managers, service managers)
Managerial accounting-focuses on needs of internal users

What kinds of opportunities are in accounting?

Financial
Managerial
Taxation
Accounting-related

majority are in private accounting)

•Data Analytics- analyzing data to see trends & relations

Data Visualization- using graphs to help people understand significance

What are the Ethics?

Ethics - separate right from wrong
Ethical Decision Making: 1-Identify ethical concerns 2-Analyze options 3-Make ethical decision
Fraud Triangle - Opportunity, Pressure, Rationalization internal controls - procedures to protect assets, promote efficiency, & uphold company policies
Auditors - verify internal control effectiveness

RULES & REGULATIONS

What are the Generally Accepted Accounting Principles (GAAP)?

GAAP - concepts & rules that keep information relevant and accurate
Securities & Exchange Commission (SEC) - U.S. gov. agency that companies are properly using GAAP

What is the conceptual Framework?

Objectives - provide info useful to investors, creditors, etc.
Qualitative characteristics- require info that has relevance & faithful representation
Elements-define items in financial statements
Measurement Onmeasurement-sets criteria for item to be recognized as an element & how to measure it

What are the Principles, Assumptions, & Constraints?

General principles - assumptions, concepts, & guidelines used to prepare financial statements
Specific principles - detailed rules used for reporting business transactions & events

Principles

Measurement principle (cost principle) - Accounting info is based on the authentic cost, not what it could or should be. cost principle ≠ shoulda, coulda, woulda
Revenue Recognition Principle - revenue is recognized as soon as a good or. service is given to a customer, unless its a credit sale
*Expense Recognition principle, (matching principle) - A company keeps track of expenses needed to create & sell the product service.
•Full Disclosure principle- Companies report all financial statements that may impact user decisions.

Assumptions

Going - concern Assumption, - assuming a company will stay in business in the future
Monetary Unit Assumption, - Transactions & events expressed in money or units
Time Period Assumption - company life can lae divided into time periods
Business Entity Assumption - A business is separate from its owner

COMPONENTS OF ACCOUNTING

Constraints

info disclosed must have benefits that outweigh the negatives for the user

Assets

Assets = resources a company owns or controls
Assets include: cash, supplies, equipment, land, buildings, accounts receivable assets in (credit), notes receivable, prepaid accounts

*when assets in prepaid accounts are used, advance payments become expenses

Liabilities

Liabilities= someone a business owing something to another person/business. what a business ones to another entity

* Liabilities include: wages payable to workers, accounts payable to suppliers, notes payable (to banks), taxes payable, unearned revenue accounts, accrued liabilities

Equity

Equity = the amount owned or capital invested into the company by the owner

*Equity includes: owner investments, owner distributions, revenue accounts, expense accounts (rent, salary) , common stocks, dividends

*if benefits are used in the month paid (paid vent in July, used in July)

* plant assets- long term tangible assets used to produce & sell products & services (ex. buildings, machines)

ACCOUNTING EQUATIONS & ANANCIAL STATEMENTS

Assets = Liabilities + Equity

Assets = Liabilities + Common Stock-Dividends + Revenues - Expenses

Common Stock- increase in money ur other assets in exchange for stack
Dividends-decrease in money & other assets to snarenaders, reducing equity.
Revenues - increase equity (from net income) as sales & commissions grows
Expenses- decrease equity (from net income) as costs of products & services increase

What is an income statement?